What you need to know (daed si luaP)!

Stay Connected

Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Fed Chairman Bernanke Calls for 25 ml Sodium Pentothal Hike

When all else fails, give 'em the truth, eh? Hmmm, perhaps not. The market seems to enjoy its happy Inflation fantasy. But the ghastly apparition of Stagflation? Yikes! And the evil specter of Deflation? Apocalyptic!

Yesterday, Federal Reserve Chairman Ben Bernanke stepped behind a mahogany bar and poured a bunch of bankers gathered in D.C. for the International Monetary Conference a stiff cocktail.

The ingredients? One part dislocated inflation expectations, two parts slower job growth and stagnant wages, a dash of "noticeably decelerating" consumer spending with a "moderating" real estate market garnish.

The Fed Chairman dumped all of these ingredients into a stainless steel container, shook it a few times, then said in a slightly quavering voice, "Core inflation measured over the past three to six months has reached a level that, if sustained, would be at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth."

Unfortunately, that's not what anyone ordered. Slowing job growth? Stagnant wages? Decelerating consumer spending? That's a Stagflation, straight up. But we ordered an Inflation and soda with a lime!

So, what's this stuff about "core inflation volatility" and "price stability" the bartender was pitching? That's called inflation upon inflation. See, when you use massive amounts of liquidity to "create" global growth, and then use that "synthetic" growth as a benchmark, inflation doesn't appear to be inflation until the pub owner turns the lights on. (Yikes, you look... different with the lights on!)

But, as we all know, once the lights come on and all the decisions have been made (both good and poor), it's time for the party to wind down and for us to live with the consequences of our cocktails.

In this case, we believe the Fed is focused on inflation at precisely the moment the cyclical upturn created by excess liquidity is ending... globally. Meanwhile, it's 4.a.m., and the structural elements of deflation and the end of the credit cycle are upon us.

2. Fannie Sachs?

BusinessWeek reports that Fannie Mae, whose business is "the American Dream," (if by "American Dream" one means, extensive financial fraud over a six-year period, doctoring earnings so executives could collect hundreds of millions of dollars in bonuses, and cooking the books to overstate earnings by more than $10 billion), had quite a bit of help rearranging things thanks to, among others, the firm formerly headed up by the new Treasury Secretary. Man, we just love it when a plan comes together!

According to BusinessWeek's June 12 issue, the SEC is looking into deals that Goldman Sachs (GS), among others, allegedly helped Fannie Mae structure to manipulate earnings and maintain the illusion of steady profit growth.

SEC Chairman Christopher Cox has warned that people and "entities whose actions and inactions" contributed to the Fannie debacle will be "vigorously pursued."

Let's suppose, just hypothetically, that Christopher Cox really would like to pursue those whose alleged "actions and inactions" contributed to the Fannie debacle.

Let's imagine, hypothetically of course, that Cox would begin this "pursuit" by personally interviewing the chief executive (or former chief executive) of a company allegedly involved in deals Fannie used to "manage" its earnings. Where would such a pursuit begin?

Remember as a kid when you used to help Uncle Eddie cut moulding at the saw mill on weekends? "Careful with that buzzsaw," he would always say. "You could lose a digit, and I don't mean the number kind." Today, Uncle Eddie took the Indian Sensex Index to the emergency room. You guessed it: buzz saw accident.

After clinging to 10,000 for most of the day, Indian stocks slipped in the last hour of trading, falling below 10,000 for the first time since February 17.

The Sensex hit a high of 12,671.11 on May 11 but are down 21% since then.

Why India? Why now?

Depending on whom you ask, Indian stocks are down because of: a) Inflation fearsb) oil pricesc) political concerns

The Associated Press reported yesterday that foreign funds have pulled more than $2.7 bln from the Indian stock market over the past three weeks.

That withdrawal follows a record $12.3 bln of foreign funds pumped into Indian stocks in the past year.

What is really going on, however, is that the Indian stock market is among the most leveraged to global liquidity and foreign investment.

Any structural shift in risk appetite, globally, will show up first in those emerging markets most dependent upon foreign investment. That puts the Sensex at the top of the list.

So, while the fundamentals of the Indian growth story remain unchanged, the fact is the risk appetite of those who are most responsible for fueling equity market prices perhaps is changing.

4. IBMumbai

Speaking of India's fundamentals, IBM today announced it would become the latest U.S. company to pour money into the growing Indian market.

IBM said it plans to invest nearly $6 bln in India over the next three years, tripling the amount the company invested in India in the prior three years.

Among planned investments are an expansion of IBM's services, software, hardware and research businesses.

IBM is already the largest multinational firm in India with 43,000 staff in 14 cities, according to CNNMoney.com.

Minyanville Professor Sanjay Somaney has noted that the Indian IT/software services sector is expected to grow by 25%-28% in the current fiscal year ending March 2007 according to an industry body in India.

As well, he says, "By 2010, Indian IT companies will see about $60 billion in combined revenues."

There should be little doubt about Professor Somaney's analysis of Indian IT/software services growth. But this illustrates the difference between fundamental stories and structural shifts in risk appetite.

6. 666

Because today is June 6, 2006, or 6/6/6, we decided to take a look at the six best devils in cinematic history. This is not a celebration, mind you. Like you, we are god-fearing Minyans. But we are also god-fearing Minyans who are aware of things such as logic, reason and mass hysteria, all of which conspire to tell us that 6/6/6 is just another date on the calendar.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.